Wednesday, December 14, 2011

Some New Year Resolutions

In no particular order, here’s a bunch of ideas for resolutions for 2012. Some are a bit tongue in cheek, some are impossible, but maybe one or two just might be worth trying?

We live in a democracy. Consumer preference should lead public policy, not the other way around.

Market forces and consumer preferences are now not just largely ignored, but too frequently the subject of public policy disdain.  Where consumer preferences don’t align with some ideologically driven position, they become the subject of attempts to ‘re-educate’ the public.  Stalin would be proud of how far we’ve come. Instead, in 2012, let’s have some public policy settings that actually ask the question: “what do the majority of people actually want?”  You can’t - and shouldn’t in a free and democratic society at least – impose unwanted ‘solutions’ onto an unwilling public just because someone in a position of power has deemed it’s good for them.

The suburbs are fine, thank you.

If you live in a suburb of one of our cities you could be forgiven for thinking you’re the root of all problems from traffic congestion to obesity to rising seas and falling skies.  Anti-suburban intellectual snobbery isn’t anything new but lately perhaps it’s been getting a bit too much air time? So in 2012, let’s hear a bit less from the anti-suburban elites, and perhaps celebrate the fact that our suburbs have proven remarkably successful as places to live, work and play. There’s a lot that’s right about them, they’re popular with the community, and most of our suburbs were delivered before highly deterministic planning schemes were thought of. (How could that be?)

We can handle the truth!

Gathering impartial evidence and examining the facts are increasingly out of favour in public policy, at least it seems that way.  It’s become quite trendy to recite slogans and ‘truisms’ without asking for the evidence of whether they’re true and can be readily substantiated, or whether they’re just some new form of urban myth.  Maybe myth-busting and healthy scepticism should be taught in schools and universities, as opposed to the slavish adoption of public policy fashion. So how about in 2012, evidence and impartial factual analysis makes a comeback?

A bit less dogma?

‘Four legs good, two legs baaad.’ So bayed the sheep at Napoleon the pig’s insistence in George Orwell’s ‘Animal Farm.’  Dogma is not a good thing. But much of what passes for public policy is often little more than dogma, designed to push, cajole or direct people toward some outcome that they’re otherwise not fond of. The private car, for example, is not a bad thing, but we are frequently told it is (or at least that’s implied). The detached home is not a bad thing either. The backyard, likewise, is something we can ‘afford’ to have. The truth about dogma of course is that’s often a willing bed partner of hypocrisy. ‘All animals are equal, but some are more equal than others’ was where dogma led to in Animal Farm. In public policy, it means ‘do as I say, not as I do.’ And there are plenty of examples of that. Maybe in 2012, we could have much less of that?

Let’s give the word “appropriate” a rest.

A pet hate of mine is the way the word “appropriate” (or more often “inappropriate”) is used in justifying public policy assertions. Just what do people mean, for example, when they say ‘this form of housing is no longer appropriate’?  Appropriate? You mean it’s something you disagree with on a personal or philosophical level, and you want to impose your thinking onto others by suggesting there’s something fundamentally wrong with it? If that’s what’s come to be meant by the word in the public policy context, let’s give it a rest in 2012. If you just don’t like something, just say so and express that as your opinion, but don’t load it with a value judgement by telling me it’s not ‘appropriate’. 

A few less study tours to mediaeval towns or frozen metropolises

In 2012, maybe we could question the relevance to Australian cities of town planning study tours to Copenhagen, Venice, Paris, Portland, or Vancouver (just some of the places cited as ‘cities we should be more like’). For starters, the town centres of most Euro cities were designed and laid out in the middle ages. Transport economics was unheard of. Private transport was mainly by foot because most people were too poor for a horse.  And they were all created before the advent of ‘town planning’ as we know it. And as for more modern centres like Portland and Vancouver, why choose some of the world’s least affordable cities as benchmarks for Australia to study? We’ve got enough problems on that front already. Then of course there’s the climate issue - cities designed for freezing winters and very brief summers may not be the most logical case studies to use? Why not instead visit cities in regions of similar climate, and where affordability and quality of life and economic opportunity are all in a healthy state? Maybe the junket factor for Houston, USA, just isn’t quite as appealing as Hamburg? Or at the very least, if it’s simply impossible to resist the latest planning study tour to Paris, try at least getting out of the ancient and touristy centres of town, and away from the 5 star hotels and conference rooms, and visiting the suburbs where the majority of Parisians live and work.

It’s OK to count heads and ask what they do

I was surprised to be corrected about a recent article which guessed that the $17million budget for the planning and assessment ‘directorate’ of the Sunshine Coast Council might indicate some 200 people working in that department. I was wrong:  the figure I’m told is more like 270 staff. Just what do 270 staff do in a planning department for a local council with a population of just over 300,000 people? That’s almost 1 planning department employee to every 1000 residents. According to the Australian Medical Association of Queensland, the ideal ratio of GPs to population is one to 1000, but we’re currently experiencing a shortage of GPs such that the ratio is closer to 1:1500. Surely planners haven’t become more important that doctors? These large planning bureaucracies spend a lot of taxpayer funds, and have grown exponentially in size and power in the last decade. But for what outcome? It is fair to question bureaucracy wherever it’s found, and town planning bureaucracies are no different. The solution isn’t more bureaucrats, it’s less red tape. Let’s start asking some questions in 2012?

When it’s not ‘our land’– it’s private property

The legal rights and protections afforded to owners of private property have been whittled away to the point that some landowners must wonder why they bother. It might be timely in 2012 to start reminding NIMBYs, bureaucrats, academics and sections of the media who make pronouncements about what should and shouldn’t be done on someone else’s land, that it’s not ‘their’ land make decisions about: it belongs to the person holding the title, and paying the taxes. Owners’ views ought to hold substantial sway.

Hyprocrisy on affordability

Another little resolution for 2012 would be to ask that local, state or federal governments simply stop pleading their concerns about housing affordability if at the same time they continue to raise taxes, add regulations, limit or delay supply and add to the complexity of construction for simple housing development. You can’t have it both ways. If you are concerned about affordability, cut the taxes, free up the constraints, and fix what the industry’s been identifying as a huge problem for more than a decade.

‘Yes you can’ cut levies

On the subject of taxes, it is of course quite possible to cut taxes on property and new development in particular. Upfront per lot or per application development fees are tightly focussed on new supply, to the point where new supply becomes prohibitively expensive. But at the same time, the justification for these development levies seems to be that rates and other general taxes can’t rise beyond inflation. Surely though if the community as a whole benefits from a certain activity or infrastructure investment, the community as a whole should pay? And if you want to provide new libraries and pools, and cultural facilities for the community as a whole, it’s unfair to expect only new development to pay for it. Cutting levies is possible, as is raising rates, or reducing the scale of promises. It just requires more political will. Maybe 2012 will provide some?

Demand some KPIs

A simple measure, easy to put into effect in 2012, would be for new planning schemes, initiatives or regulatory mechanisms to have attached some very clear and measureable KPIs. In short, if the regulation is intended to produce a certain outcome, how will you measure that outcome? And if it fails to measure up, scrap it.

Realism not heroism

Heroic assumptions are fine in their place, but maybe not in public policy. Realistic, evidence-based approaches are far superior. For example, I still don’t know (nor can anyone tell me) how we are going to create 138,000 infill dwellings in Brisbane, or 374,000 infill dwellings in south east Queensland, in 20 years.  Just where will they go? 374,000 infill dwellings is the equivalent of 4,675 twenty storey apartment buildings, or 212 such towers per year for 20 years. Sound stupid? But that’s exactly the target contained in the SEQ Regional Plan. And if it realistically just can’t be done, is it time to revisit those assumptions with something more realistic?

Forecasting the future?

Is something best left to gypsies. Some developers now complain that it can take 10 years from site acquisition to the first sale, and in that time, much changes. Ten, twenty or 30 year plans are OK for stimulating the mind and provoking debate, but locking in public policy inflexibility for something that may happen in 20 years’ time based on what we know today and the assumption that things won’t change, seems odd.

Take a helicopter view (we’re not running out of land)

To all those ardent believers of the view that we’re fast running out of land, or at risk of ‘LA type sprawl’ my wish for you in 2012 is a helicopter ride over south east Queensland. Look down. There are trees and open land everywhere. We are so far from ‘running out’ that to suggest otherwise is to refuse to believe what your own eyes are telling you.

Private enterprise pays for public services

Basic economics 101 is the lesson that a healthy and profitable private sector generates the wealth (taxes) that pay for the public sector. Cripple the private sector and the public sector fast runs out of money (or has to borrow it). This is something the Greeks and Italians forgot. Let’s not forget the lesson here in 2012. Governments (dare I harp on but planning departments included) could spend a bit more time on the ‘how can we help you make money’ line of thought rather than the ‘making money from economic or urban development is wrong’ culture. Without money, without the profit motive, the music stops and tax revenues that pay for all public services dry up.

Developers create things. Plans don’t.

Look around. Most of our region was developed and built before modern town planning , as we now know it, came to such prominence.  Developers made this happen. People who took risks.  Almost every house in every suburb, every shopping centre, factory, office or workplace was created by a developer taking risks to develop the land on which these things now sit. There are some notable exceptions – SouthBank being one – where public sector planning and development, using taxpayer funds, has created something positive. But even here, it could not have been done without developers. They are not the enemy. They create value. They create jobs and places for people to live, to work and also to play. Planning regulations and brightly illustrated planning documents or policies don’t create these things.

No more ‘initiatives’ that add cost

Here’s a wild idea. Every time some new ‘initiative’ designed to save the planet or achieve some public policy objective is raised, the costs involved in doing so are subject to an affordability test. If mandatory building code changes are going to add several thousand dollars to the cost of a new project home, that test should ask “can young families afford this extra cost on their mortgage.” If not, the proponents ought to have to work much harder to get their ideas up. At the very least they ought to get a thumbs up from the people who are ultimately being asked to pay.

The city is not a museum

We’ve become very protective of our urban form, to the point that NIMBYs have become replaced with BANANAs (Build Absolutely Nothing Anywhere Near Anything). It’s almost as if we now have some collective desire to see nothing much change. But that’s a strange way of thinking, because it suggests that nothing we have today can’t be done better tomorrow. Our city can evolve, grow and develop, improving the lives of its residents and meeting their changing needs during their lives. But if we are being asked to place a giant glace dome over the region and declare it all a museum piece to be preserved for all time, then evolution won’t be possible and the quality and standard of life will decline.  It would be nice for the positives of change to get some more air time in 2012, as opposed to this sense of wanting to cling to everything as it now is.

Hope that lot got you thinking, please feel free to suggest a few more.

Happy New Year!

Wednesday, November 23, 2011

Time to rethink this experiment?

The famous physicist, Albert Einstein, was noted for his powers of observation and rigorous observance of the scientific method. It was insanity, he once wrote, to repeat the same experiment over and over again, and to expect a different outcome. With that in mind, I wonder what Einstein would make of the last decade and a bit of experimentation in urban planning and development assessment? 

Fortunately, we don’t need Einstein’s help on this one because even the most casual of observers would conclude that after more than a decade of ‘reform’ and ‘innovation’ in the fields of town planning and the regulatory assessment of development, it now costs a great deal more and takes a great deal longer to do the same thing, for no measureable benefit. As experiments go, this is one we might think about abandoning or at the very least trying something different.

First, let’s quickly review the last decade or so of change in urban planning and development assessment. Up until the late 1990s, development assessment was relatively more straightforward under the Local Government (Planning and Environment) Act of 1990. Land already zoned for industrial use required only building consent to develop an industrial building. Land zoned for housing likewise required compliance with building approvals for housing. These were usually granted within a matter of weeks or (at the outset) months. 

There were small head works charges, which essentially related to connection costs of services to the particular development. Town planning departments in local and state governments were fairly small in size and focussed mainly on strategic planning and land use zoning. It was the building departments that did most of the approving. Land not zoned for its intended use was subject to a process of development application (for rezoning), but here again the approach was much less convoluted that today. NIMBY’s and hard left greenies were around back then, but they weren’t in charge. Things happened, and they happened far more quickly, at lower cost to the community, than now.

In the intervening decade and a bit, we’ve seen the delivery and implementation of an avalanche of regulatory and legislative intervention. It started with the Integrated Planning Act (1997), which sought to integrate disparate approval agencies into one ‘fast track’ simplified system. It immediately slowed everything down.  It promised greater freedom under an alleged ‘performance based’ assessment system, but in reality provoked local councils to invoke the ‘precautionary principle’ by submitting virtually everything to detailed development assessment. The Integrated Planning Act was followed, with much fanfare, by the Sustainable Planning Act (2009). Cynics, including some in the government at the time, dryly noted that a key performance measure of the Sustainable Planning Act was that it used the word ‘sustainable’ on almost every page. 

Overlaying these regulations have been a constant flow of land use regulations in the form of regional plans, environmental plans, acid sulphate soil plans, global warming, sky-is-falling, seas-are-rising plans   plans for just about everything which also affect what can and can’t be done with individual pieces of private property.
But it wasn’t just the steady withdrawal of private property rights as state and local government agencies gradually assumed more control over permissible development on other people’s land: there was also a philosophical change on two essential fronts.

First, there was the notion that we were rapidly running out of land and desperately needed to avoid becoming a 200 kilometre wide city. Fear mongers warned of ‘LA type sprawl’ and argued the need for densification, based largely on innocuous sounding planning notions like ‘Smart Growth’ imported from places like California (population 36 million, more than 1.5 times all of Australia, and Los Angeles, population 10 million, roughly three times the population of south east Queensland).  The first ‘South east Queensland Regional Plan 2005-2026’ was born with these philosophical changes in mind, setting an urban growth boundary around the region and mandating a change to higher density living (despite broad community disinterest in density). It was revisited by the South East Queensland Regional Plan 2009-2031 which formally announced that 50% of all new dwellings should be delivered via infill and density models (without much thought, clearly, for how this was to be achieved and whether anyone particularly wanted it). Then there was the South East Queensland Regional Infrastructure Plan 2010-2031 which promised $134 billion in infrastructure spending to make this all possible (without much thought to where the money might come from) and a host of state planning policies to fill in any gaps which particular interest groups or social engineers may have identified as needing to be filled.

The significant philosophical change, enforced by the regional plan, was that land for growth instantly became scarcer because planning permission would be denied in areas outside the artificially imposed land boundary. Scarcity of any product, particularly during a time of rising demand (as it was back then, when south east Queensland had a strong economy to speak of) results in rising prices. Which is just what happened to any land capable of gaining development permission within the land boundary: raw land rose in price, much faster than house construction costs or wages. 

The other significant philosophical change that took root was the notion of ‘user pays’ - which became a byword for buck passing the infrastructure challenge from the community at large, to new entrants, via developer levies. Local governments state-wide took to the notion of ‘developer levies’ with unseemly greed and haste. ‘Greedy developers’ could afford to pay (they argued) plus the notion of ‘user pays’ gave them some (albeit shaky) grounds for ideological justification. Soon, developers weren’t just being levied for the immediate cost of infrastructure associated with their particular development, but were being charged with the costs of community-wide infrastructure upgrades well beyond the impact of their proposal or its occupants. 

Levies rose faster than Poseidon shares in the ‘70s. Soon enough, upfront per lot levies went past the $50,000 per lot mark and although recent moves to cap these per lot levies to $28,000 per dwelling have been introduced, many observers seem to think that councils are now so addicted that they’ll find alternate ways to get around the caps.

So the triple whammy of ‘reform’ in just over a decade was that regulations and complexity exploded, supply became artificially constrained to meet some deterministic view of how and where us mere citizens might be permitted to live, and costs and charges levied on new housing (and new development generally) exploded.

At no point during this period, and this has to be emphasised, can anyone honestly claim that this has achieved anything positive. It has made housing prohibitively expensive, and less responsive to market signals. Simply put, it takes longer, costs more, and is vastly more complicated than it was before, for no measureable gain.

[An indication of this was given to me recently in the form of the Sunshine Coast Council’s budget for its development assessment ‘directorate.’ (How apropos is that term? It would be just as much at home in a Soviet planning bureau).  Their budget (the documents had to be FOI’d) for 2009-10 financial year included a total employee costs budget of $17.4 million.  For the sake of argument, let’s assume the average directorate comrade was paid $80,000 per annum. That would mean something like more than 200 staff in total. Now they might all be very busy, but it surely says something about how complexity and costs have poisoned our assessment system if the Sunshine Coast Council needs to spend over $17 million of its ratepayer’s money just to employ people to assess development applications in a down market.]

If there had been any meaningful measures attached to these changes in approach over the last decade, we’d be better placed to assess how they’ve performed. But there weren’t, so let’s instead retrospectively apply some:

Is there now more certainty? No. Ask anyone. Developers are confused. The community is confused. Even regulators are confused and frequently resort to planning lawyers, which often leads to more confusion. The simple question of ‘what can be done on this piece of land’ is now much harder to answer.

Is there more efficiency? No. Any process which now takes so much longer and costs so much more cannot be argued to be efficient.

Is the system more market responsive? No. Indeed the opposite could be argued – that the system is less responsive to market signals or consumer preference. Urban planning and market preference have become gradually divorced to the point that some planners actively view the market preferences of homebuyers with contempt.

Are we getting better quality product? Many developers will argue that even on this criteria, the system has dumbed down innovation such that aesthetic, environmental or design initiatives have to fight so much harder to get through that they’re simply not worth doing.

Is infrastructure delivery more closely aligned with demand? One of the great promises of a decade of ‘reform’ was that infrastructure deficits would be addressed if urban expansion and infrastructure delivery were aligned. Well it’s been done in theory via countless reports and press releases but it’s hardly been delivered in execution. And when the volumes of infrastructure levies collected by various agencies has been examined, it’s often been found that the money’s been hoarded and not even being spent on the very things it was collected for.

Is the community better served? Maybe elements of the green movement would say so, but for young families trying to enter the housing market, the answer is an emphatic (and expensive) no. How can prohibitively expensive new housing costs be good for the community? For communities in established urban areas, there is more confusion about the impact of density planning, which has made NIMBY’s even more hostile than before.

Has it been good for the economy? South east Queensland’s economy was once driven by strong population growth – the very reason all this extra planning was considered necessary. But growth has stalled, arguably due to the very regulatory systems and pricing regimes that were designed around it. We now have some of the slowest rates of population growth in recent history and our interstate competitiveness – in terms of land prices and the costs of development – is at an all time low. That’s hardly what you’d call a positive outcome.

Is the environment better served? If you believe that the only way the environment can be better served is by choking off growth under the weight of regulation and taxation, you might say yes. But then again, studies repeatedly show that the density models proposed under current planning philosophies promote less environmentally efficient forms of housing, and can cause more congestion, than the alternate. So even if the heroic assumptions for the scale of infill and high density development contained in regional plans was actually by some miracle achieved, the environment might be worse off, not better, for it. 

All up, it’s a pretty damming assessment of what’s been achieved in just over a decade. Of course the proponents of the current approach might warn that – without all this complexity, cost and frustration – Queensland would be subject to ‘runaway growth’ and a ‘return to the policies of sprawl.’ The answer to that, surely, is that everything prior to the late 1990s was delivered – successfully - without all this baggage. Life was affordable, the economy strong, growth was a positive and things were getting done. Queensland, and south east Queensland in particular, was regarded as a place with a strong future and a magnet for talent and capital. Now, that’s been lost.

Einstein would tell us to stop this experiment and try something else if we aren’t happy with the results. To persist with the current frameworks and philosophies can only mean the advocates of the status quo consider these outcomes to be acceptable.  Is anyone prepared to put up their hand and say that they are?

Tuesday, November 1, 2011

Will you still house me, when I’m 64?

In the song by the Beatles, the worry was about being fed and needed at 64. Things have changed. If the Beatles wrote those lyrics today, the worry instead might be about housing.
Australia’s ageing population is an inevitability.  As our replacement rate falls (we’re having fewer children per family) and life expectancy extends, the proportion of over 65s will double in 40 years. In raw numbers, there were 2.5 million over 65s in 2002, and this will rise by 6.2 million in 2042. That’s an extra 4 million in this demographic. Have we given enough thought to where they’re going to live, and what styles of housing they might prefer?
There have been a number of developers who have understood the looming significance of Australia’s ageing population, and who have sought to supply the ‘retirement living’ market with product that suits. At one end have been the glitzy apartment style residences in inner city locations, while at the other have been the aged care ‘homes’ provided for those in need of access to nursing care or medical assistance, or at least the reassurance of it being present.
Running parallel with the provision of retirement living or seniors living projects has been an assumption that, once ready to abandon the family home of many years, seniors will be happy to move across town and relocate to the facilities that are available. (Perhaps this is hangover from the days when retirement or aged care living was provided on Stalinist lines: our oldies were forcibly shuffled off to some retirement centre well away from the rest of the community they grew up in. A sort of gulag for grumpies?)
But what if seniors simply want a change of housing style within their community? What if they don’t want to move across town to the only available accommodation because they would prefer to continue to live in the neighbourhood and community they have spent a large part of their lives living in? They may want to continue to shop with ‘their’ local butcher, visit their local supermarket, newsagent, bank branch (if it still exists) and generally remain connected to the people and places that they’re familiar with – including (quite possibly) members of their family, children and grandchildren.
Meeting that need in the future is going to be close to impossible unless planning schemes (old fashioned zoning laws) adopt a more flexible approach. Flexibility will be needed because most of the existing suburbs of our major population centres are largely built out and will require retrofits and redevelopment of existing stock to accommodate senior’s housing preferences. Generally, the only tracts of undeveloped land capable of meeting seniors housing needs tend to be on the outskirts and while there’s nothing wrong with fringe development, it seems unfair to expect seniors to relocate across town to regions they’re unfamiliar with and to alienate themselves from their community simply because supply side mechanisms (controlled by planning schemes) don’t permit choice.
Further, the built out status of our ‘established’ suburbs – as they now stand – is something that much planning law seems to want to preserve for time immemorial. It’s a little bit like imagining that someone has declared the existing housing mix and styles a fixture of permanency: let’s put a giant glass dome over it all and call the city a museum – because we don’t (it seems) want anything to change.
But if we are to allow Australia’s seniors to ‘age in place’ and to ensure our markets provide choice, it’s going to mean some things will need to change, given the likely levels of future demand. The fastest growth of aging populations will be around our ‘middle ring’ suburbs and given the overwhelming preference to ‘age in place’, it is these suburbs that are going to have to change if those needs are to be met.
What will that change look like? The psychology of seniors in years to come – even today – is going to be different to those of previous generations. They’ll likely be more active rather than sedentary. The family home that’s served them to this point may now be simply too big for their needs, or contain too many stairs (the artificial hip or knee doesn’t like too many stairs). Their future housing needs will vary widely - some will be happy with apartments in high to medium density developments (elevators to their level of living means no stairs) while others (generally the majority) will prefer smaller, detached or semi-detached, single level dwellings. Many may want a small yard or garden (or at least a large balcony or terrace if in a unit), and perhaps want to keep a small pet dog or cat. They may want a spare bedroom for visitors or for babysitting grandchildren. They will probably prefer to be close to shops and near to public transport. And the majority will want to find something of that nature generally within the same community they’ve been living in. It is unlikely they’ll be searching for the ‘retirement home’ style of assisted care living until they’re well into their later years when their choices will be more limited.
Their problem will be that developers will struggle under current planning schemes to get approval for semi-detached housing designed with seniors in mind, if it means amalgamating some detached residential dwellings near local shops, because that land use is highly protected. They will struggle to gain approval to convert a large single site into medium or high rise in areas near local shops or transport, because the community will likely object – particularly if it’s in a neighbourhood where low density prevails (typical of most of suburban Brisbane). Advocates of TOD style development might now be shouting at this article that ‘TODs are the answer.’ That might be so, if only one single TOD had been delivered during the past 15 years we’ve been talking about them. Plus, the majority of proposed ‘TOD’ style development areas largely surround inner city transport nodes. Not much use if you’re in Aspley and want to stay there. And of course there’s the reality that multi level apartments are much more costly to develop and construct than the cottage building industry’s approach to single level, small detached housing.
The changes needed need not be dramatic, and subtle changes to land use surrounding existing retail or service centres in middle ring suburbs ought to be able to be achieved with minimal planning fuss. (It is still possible to imagine something being done with minimal planning fuss, but very difficult to point to any actual examples. Still, hope springs eternal).
The changes could allow (for example) for some amalgamations of larger lot, detached post war homes into higher density cottage-style dwellings on a group title, still single level and with low construction costs. A 2000 square metre amalgamation could in theory provide 10 such cottages, with private garden space and minimal likelihood of community objection. The key would be to keep regulatory costs down, so punitive development levies would be out of order. After all, the infrastructure already exists and seniors tend to be much less demanding on utilities or services than young households. (Have a think about how little garbage they generate, or how little water they use as an illustration. It would surely be unfair to tax seniors in this type of housing for infrastructure upgrades under the circumstances?).
The traditional ‘retirement home’ or ‘aged care’ model of seniors housing is still going to be needed, especially as people require more frequent or acute care in their later years, and become less and less independent. But there will be a good 10 to 15 year period for people for whom the family home no longer suits, and who aren’t yet ready for ‘God’s waiting room.’ How we accommodate this coming bubble of seniors who want to age in place and continue to live independently, and how planning schemes will allow markets to provide choice and diversity, is something that perhaps should be a policy focus now.

Thursday, October 20, 2011

Is industrial strife a sign of housing stress?

Industrial disputes are becoming once again a frequent feature of the daily media. Unions are pushing for wage rises in the face of the falling buying power of the fixed wage (as costs of living rise). Those wage push pressures are being resisted by businesses which are trying to stay afloat in a very ordinary domestic economy and in the face of rising global competition.  But as unions push for more wages, is it not possible to consider lower living costs as a solution which benefits fixed wage workers and which also benefits business? And if lower living costs are part of a solution, then housing – one of our highest living costs of all – ought to take centre stage.

It’s ironic that the rapid and undeniable escalation of housing costs relative to average wages has taken place largely due to policies introduced during the terms of State Labor Governments. The introduction of artificial growth boundaries that limited land supply, the introduction of upfront taxes on new development, and the spawning of myriad and complex planning and development regulation, whether it’s been in Queensland, NSW or Victoria, have all occurred generally with Labor Governments in power.

The reason it’s ironic is that the adverse impacts of those policies have been most felt by the very constituency which Labor traditionally sought to represent: working people, in largely fixed wage environments. In the very early days of the Australian Labor Party, these were symbolised by shearers in their Jackie Howe’s.  Later in the 20th century, they expanded to include the unionised ‘white collar’ workforce of teachers, nurses, police and other para-professional groups. Today though, wage pressures by unions of teachers, police or other groups (especially those on public payrolls) are assiduously resisted by Labor Governments, as they defend their budgets. And this is the irony – having presided over and championed policy mechanisms which have had a large impact on the cost of living of these groups of workers, these same governments then resist attempts to recover that standard of living through wage growth.

Now before you think I’ve gone all militant on you all (trust me, I haven’t), here’s an example of what I’m driving at.

Much has been said about housing affordability, and what it will mean to lock an entire generation out of the housing market.  Even as late as this week, this story documents yet another report attesting to falling home ownership and the rise of a renting class.  Most of what is said and written about affordability though works on averages – average incomes, and average house prices. These are convenient measures, so it makes sense to do so.

Consider for a moment though the people who are trying to enter the housing market and buy a home in which to raise a family. They could typically be around their mid to late 20s, and biologically in their prime for having and raising children. At this stage of life, you are probably below the average income for your career or profession as you’re really only starting out. But it’s at this stage of life that the reality of the affordability problem is most acute.

In Queensland, this might be a teacher in their mid 20s, with two or three years of training, who will earn around $50,000 per annum gross and pay roughly $9,000 per annum in income tax. He (or she) may be married to a police constable, of the same age, who will earn roughly $58,000 per annum gross including their operational shift allowance, and pay around $11,500 in tax. Their combined after tax income could be around $87,500 per annum. (This combined income would be much less of course if, for example, one of our young couple was a child care or retail worker).

Now, take a modest new family home in an outer suburb like North Lakes or Springfield. Let’s assume they’ve saved a small deposit, and with a loan of $400,000, they buy something for around $450,000. That’s hardly McMansion territory. But that loan, over 30 years at 7.8%, will cost them close to $35,000 per annum in repayments, or 40% of their combined after tax incomes.
This, of course, is before they even think about children, and the prospect (despite generous maternity and paternity pay and leave provisions) of enduring a significant household income reduction while one of them isn’t working. Even on returning to work, there would then be child care fees, which quickly erode their pre-child household budget.

The basic sums are not horrendous but neither are they full of promise. Buying a home and starting a family have become a huge financial consideration, instead of a fairly normal and unremarkable pattern of generational and social growth. And it is now absolutely dependent on a dual income family, with both of them preferably good incomes.

This is a profound change, and it’s happened just in the last decade. As a result, fewer people are buying homes, people are postponing children (until they can afford them) and when they do, they’re having fewer children. A countless stream of statistical and demographic reports are now underlining this change on an all too frequent basis. All of which is very bad news for the economy, for society and the community as a whole. 

But returning to my original theme – is it any wonder we’re seeing wage push pressures from people such as those in this example?

Consider the cost of the $450,000 modest home they’ve bought. Within that price is roughly a $50,000 up-front ‘developer levy’ (better called a new home buyer tax). There’s probably close to the same in inflated land costs, brought on by artificial land supply constraints in a country of unbelievably abundant land. There’d also be a raft of minor additional building costs introduced under the guise of ‘green’ or ‘sustainable’ building guidelines, in order to prevent the sky from falling. (Sorry, I meant to say ‘to prevent the sea from rising’. I always get those two confused for some reason).  Plus there’s a hard-to-quantify compliance cost because getting the approval to develop the land for homes for the likes of our young couple now takes 10 years instead of a few months, and involves teams of town planners, lawyers, and other hangers on. Plus of course, there’s a 10% GST – the money from which was supposed to have allowed State Governments to abolish stamp duty, which they didn’t. If our hypothetical couple above weren’t first home buyers, they’d be up for stamp duty also.

The total cost of all this that’s been added to the price paid by our young couple could easily be well over $100,000. If you don’t believe me, check out this old report, prepared back when I used to get paid to do this sort of thing.
A quick bit of math’s now follows. That extra $100,000 (conservatively) has been funded via our young couple’s mortgage. That’s an extra hundred large they’ve borrowed, to cover the costs of additional taxes, fees and compliance – introduced under the watch of a State Labor Government. That $100,000 is worth an extra $720 a month on their repayments, or an extra $8,640 per annum out of their pockets. If their repayments fell by that amount, their mortgage costs would be around $26,000 per annum in total, or just under 30% of their combined household income – not 40% of it.

There you have it. At 30% of household income, not only the home becomes more affordable, but so do children.  But at 40%, it’s proving to be touch and go.

The point of all this is that there are two ways, simply put, to improve the cost of living equation faced by younger workers on largely fixed incomes. You can increase their wages (which the unions want and which businesses – and governments – resist). Or you can reduce their costs of living.

This is about as simple as economics can get but is has somehow eluded people working in State Treasuries and Planning Departments. I haven’t even commented in this on the impact of rising motor vehicle registration costs and the cost of fuel (our young couple in this example both have jobs which are dependent on the private car and hence the cost of running them – both of them).  I haven’t touched on the impact of rising utility costs – especially electricity – on their household budget. And I dare not mention the insanity of the carbon tax, which is only going to exacerbate things (our young couple have a combined gross income of $108,000 and for housing and children to be more affordable it would need to be closer to $150,000 – the very point at which, our Prime Minister has declared, people are ‘too rich’ to warrant compensation for the carbon tax. Go figure!).

The simple economics of what we’re talking about was summed up beautifully over 160 years ago, in Charles Dickens’ novel David Copperfield, when Mr Micawber lectured the young Copperfield on the perils of exceeding budgets:
"Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."

Mr Micawber, you’ll note, wasn’t implying the need for more income... he was highlighting the important role played by expenses.

In the Australia (and Queensland) of 2011, the same still applies. Rather than push for more income, unions could do better to lobby their Labor Parties to reduce living costs. Reduce the housing infrastructure levies, relax the rigidity and ideology of urban growth boundaries, reduce compliance costs, cut green taxes and simply the provision of our single greatest cost – housing.  When done with that, take on the militant green agenda and lobby for reduced retail energy costs and car registration fees, and don’t let congestion charging even get a look in.

Fighting pitched industrial battles with employers for a few extra dollars a week in income seems futile compared to the lack of battles ever fought with governments over the introduction of tens and even hundreds of thousands of dollars in extra taxes and costs associated with the provision of one of life’s essentials – a family home you can afford, the children you want to raise in it, the energy to power it, and the vehicles to get you to and from it.